Here’s Why I Think Hooker Furniture (NASDAQ:HOFT) Might Deserve Your Attention Today

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Hooker Furniture (NASDAQ:HOFT). While that doesn’t make the shares worth buying at any price, you can’t deny that successful capitalism requires profit, eventually. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

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Check out our latest analysis for Hooker Furniture

How Quickly Is Hooker Furniture Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Hooker Furniture has managed to grow EPS by 31% per year over three years. As a general rule, we’d say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Hooker Furniture maintained stable EBIT margins over the last year, all while growing revenue 10.0% to US$684m. That’s progress.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

NasdaqGS:HOFT Income Statement, May 20th 2019
NasdaqGS:HOFT Income Statement, May 20th 2019

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Hooker Furniture Insiders Aligned With All Shareholders?

As a general rule, I think it worth considering how much the CEO is paid, since unreasonably high rates could be considered against the interests of shareholders. I discovered that the median total compensation for the CEOs of companies like Hooker Furniture with market caps between US$200m and US$800m is about US$1.8m.

The Hooker Furniture CEO received US$1.5m in compensation for the year ending February 2019. That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn’t a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Is Hooker Furniture Worth Keeping An Eye On?

For growth investors like me, Hooker Furniture’s raw rate of earnings growth is a beacon in the night. With swiftly growing earnings, it probably has its best days ahead, and the modest CEO pay suggests the company is careful with cash. So I’d venture it may well deserve a spot on your watchlist, or even a little further research. While we’ve looked at the quality of the earnings, we haven’t yet done any work to value the stock. So if you like to buy cheap, you may want to check if Hooker Furniture is trading on a high P/E or a low P/E, relative to its industry.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.